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Fixing the COBRA Catch-22


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It's happened far too often in the past few years. An economy in recession drives a business to lay off a valuable employee. Immediately, a number of questions enter his or her mind. Where will I find another job? Will unemployment assistance be enough? What about health insurance?

Because businesses receive tax benefits for providing insurance to their employees, most Americans are dependent on their jobs for health insurance. When they leave or lose their jobs, they lose their insurance as well. Buying your own insurance directly from the insurance company is prohibitively expensive for most people.

Congress recognized this problem in 1986 and gave Americans the right to continue their employee coverage in the Combined Omnibus Budget Reconciliation Act (COBRA).

However, COBRA benefits come with a hefty cost. The unemployed must cover the full monthly cost of benefits plus a 2 percent administrative fee. This is typically more than $1,000 a month. Paying for COBRA benefits can quickly eat through a family's savings and unemployment benefits.

That's why I voted for federal COBRA subsidies over the last two years that helped to pay for up to 65 percent of the cost of continuing benefits. Congress recently failed to pass an extension for this program. However, I support legislation that would continue this temporary benefit without increasing the deficit and without increasing taxes.

The problem with COBRA is that when you need it, you can't afford it. I've heard this over and over from people. Constituents asked me to find a solution, and so I've introduced H.R. 6001, the COBRA Affordability Act. My bill would allow Americans to save up for future COBRA payments tax free.

While my bill would not benefit current COBRA participants, it would provide a means for those currently working to plan for the possibility of future unemployment. Right now, COBRA benefits must be paid for out of personal savings, with no tax benefit.

My legislation would allow workers to contribute to a new COBRA Premium Payment Account with pre-tax dollars. Individuals could contribute up to $2,500 a year to these accounts. The bill has a cumulative contribution cap of just under $12,000 per individual and just over $27,000 for a family. The caps are indexed to a government measure of medical price inflation and were established based on the average cost of buying COBRA benefits for two years.

If a worker needs COBRA benefits, they would be able to draw from this account. This may not be involuntary unemployment. COBRA is available to workers whose hours are being reduced, who are voluntarily quitting, are facing the death of a spouse, or are losing benefits due to divorce.

We all hope to go our entire working lives without facing unemployment. People who do get to retirement with money left in their COBRA accounts could roll these funds into another retirement account when they sign up for Medicare. Withdrawals for any other purpose are subject to taxation and a 20 percent penalty.

I'm proud of this bill, but it's not a broad solution to the problems Americans are facing with health insurance. Many Americans are satisfied with the benefits they are receiving through their employer, but worry about the disruption that occurs when they leave their present job.

I voted against Obamacare because I believe it fails to accomplish key structural reforms. Instead, it tries to fix our problems by building more bureaucracy and by spending more money. Real reform will include increased competition and increased individual control over insurance and treatment decisions. With COBRA Accounts, we can fix the "COBRA Catch 22" and put individual Americans in charge of their own futures.

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